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BHP BILLITON PLC - BHP BILLITON RESULTS FOR THE YEAR ENDED 30 JUNE 2004
BHP BILLITON PLC
JSE Share Code: BIL
ISIN: GB0000566504
Date 18 August 2004
BHP BILLITON RESULTS FOR THE YEAR ENDED 30 JUNE 2004
* Record EBITDA, EBIT and attributable profit.
* EBITDA (excluding exceptional items), up 40.0% to US$7.5 billion and EBIT
(excluding exceptional items), up 57.7% to US$5.5 billion.
* Attributable profit (excluding exceptional items) of US$3.5 billion, an
increase of 82.8% and basic earnings per share (excluding exceptional items) of
56.4 US cents, up 82.5%.
* Including other efficiency gains, the total merger benefits and cost savings
target of US$770 million was exceeded, 12 months ahead of schedule.
* Available cash flow (after interest and tax) increased to US$5.2 billion, up
45.6%.
* Increased production for all major minerals commodities, natural gas and LPG,
with record production rates for eight major products.
* Seven projects commissioned during the current year. A further 14 major
projects currently under development.
* Final dividend of 9.5 US cents declared (a 26.7% increase above the 2003 final
dividend), bringing the full year dividend to 26.0 US cents per share.
* Board approves up to US$2 billion capital management programme.
2004 2003
Year ended 30 June US$M US$M Change
Turnover (1) 24 943 17 506 42.5%
EBITDA (1) (2) (3) 7 506 5 363 40.0%
EBIT (1) (2) (3) 5 488 3 481 57.7%
Attributable profit (excluding 3 510 1 920 82.8%
exceptional items) (1)
Attributable profit (including 3 379 1 901 77.7%
exceptional items) (1)
Available cash flow (4) 5 235 3 596 45.6%
Basic earnings per share 56.4 30.9 82.5%
(excluding exceptional items) (US
cents) (1)
Basic earnings per share 54.3 30.6 77.5%
(including exceptional items) (US
cents) (1)
EBITDA interest coverage (times) 21.1 13.3 58.6%
(1) (2) (3) (5)
Dividend per share (US cents) (6) 26.0 14.5 N/C
(1) Including the Group`s share of joint ventures and associates.
(2) Excluding exceptional items.
(3) Throughout this report, EBIT is earnings before interest and tax. EBITDA is
EBIT before depreciation, impairments and amortisation of US$2,018 million
(comprising Group depreciation, impairments and amortisation of US$1,867 million
and joint venture and associate depreciation, impairments and amortisation of
US$151 million) for the year ended 30 June 2004 and US$1,882 million (comprising
Group depreciation, impairments and amortisation of US$1,721 million and joint
venture and associate depreciation, impairments and amortisation of US$161
million) for the year ended 30 June 2003. We believe that EBIT and EBITDA
provide useful information, but should not be considered as an indication of, or
alternative to, attributable profit as an indicator of operating performance or
as an alternative to cash flow as a measure of liquidity.
(4) Available cash flow is operating cash flow including dividends from joint
ventures and associates and after net interest and tax.
(5) For this purpose, net interest includes capitalised interest and excludes
the effect of discounting on provisions and other liabilities, and exchange
differences arising from net debt.
(6) Three dividends were declared for the year ended 30 June 2004, compared to
two dividends declared for the year ended 30 June 2003, as a result of the
Group`s decision to realign dividend declaration dates to coincide with the
announcements of our interim and full year results.
The above financial results are prepared in accordance with UK generally
accepted accounting principles (GAAP) and are unaudited. Financial results in
accordance with Australian GAAP are provided on page 30 to 31. All references
to the corresponding period are to the year ended 30 June 2003.
RESULTS FOR THE YEAR ENDED 30 JUNE 2004
Commentary on the Group Results
Introduction
The Group set new records this year, both in terms of its operations and its
financial results. Attributable profit (before exceptional items) increased by
82.8% to US$3.5 billion. Attributable profit (after exceptional items - refer
page 4) of US$3.4 billion, was a 77.7% increase from last year`s results and
production records were set at many operations across our business. This record
result is reflective of strong market conditions and the successful execution of
our business strategy. Since the creation of BHP Billiton, we have consistently
focused on maximising the operating performance of our world class assets and
reducing costs and improving the efficiencies of our businesses. We have
utilised the growing cash flows generated from these businesses to invest in
value accretive organic growth projects which have enabled us to benefit from
the market conditions we are now experiencing.
Record production volumes were achieved at a number of our businesses as seven
new projects came on stream and other projects ramped up to full production.
Our Operating Excellence initiatives also contributed to the increased
production, allowing us to take full advantage of strong market demand. Western
Australian iron ore, Queensland coal and Groote Eylandt manganese (all
Australia) operations produced record volumes of iron ore, coking coal and
manganese ore, respectively. Escondida (Chile) produced record copper volumes,
Cannington (Australia) produced record silver volumes and Ekati (Canada)
achieved record diamond volumes. Record alumina, aluminium, nickel and natural
gas volumes were also achieved during the current year.
Including other efficiency gains of US$70 million and US$115 million of
additional cost savings achieved during the year, the total benefits since the
merger reached US$780 million. This exceeds, 12 months ahead of schedule, the
target set in April 2002 of US$770 million. EBIT margin, excluding exceptional
items and third party product sales, improved to 29.8% compared to 24.3% for
financial year 2003.
Available cash flow (after interest and tax) for the year was a record US$5.2
billion. This strength in cash flow enabled the continuing development of our
project pipeline. The seven projects successfully commissioned during the year
required a capital investment of approximately US$1.9 billion. The Board also
approved five major projects during the year; the Worsley Development Capital
Projects, Escondida Sulphide Leach, Panda Underground, Ravensthorpe Nickel and
the Yabulu Extension projects, representing a combined capital expenditure of
US$2.2 billion. In total, the Group currently has 14 major growth projects under
development, 12 of which are tracking within Board approved budget and schedule.
Refer further details on page 8 and 9.
BHP Billiton has consistently stated that the priorities for its cash flow are:
* to finance growth opportunities with attractive rates of return;
* to maintain a capital structure in line with an A credit rating; and
* to return cash to shareholders, either through its progressive dividend policy
or by other means.
The Board of BHP Billiton remains committed to demonstrating strong capital
discipline whilst ensuring that BHP Billiton is able to finance its strong and
growing organic growth pipeline.
Following a review of its current and anticipated cash flows, the Board approved
a number of actions associated with capital management activities. The Board
has today declared a final dividend of 9.5 US cents per share, an increase of
26.7% over last year`s final dividend. This brings the total dividends for the
2004 financial year to 26 US cents per share. Additionally, the Board approved
plans to pursue additional capital management initiatives with a target amount
of up to US$2 billion. BHP Billiton is currently reviewing various means of
returning capital, including the use of share buy-backs, so as to optimise
value, with the exact amount and timing of any return being dependent upon
market conditions.
The Income Statement
Earnings excluding Exceptional Items
Turnover (including turnover from third party products) rose by 42.5% to
US$24,943 million. Turnover from sales of Group product increased by 29.4% to
US$18,283 million, mainly due to higher prices for copper, nickel, petroleum
products, aluminium, export energy coal, ferrochrome and iron ore, together with
increased sales volumes for our major minerals commodities, natural gas and LPG.
This was partly offset by lower volumes for petroleum liquids and titanium
products. Sales of third party products increased by US$3,278 million to
US$6,660 million.
Earnings before interest, tax, depreciation and amortisation, excluding
exceptional items, increased by 40.0% to US$7,506 million from US$5,363 million
in the corresponding period.
Earnings before interest and tax excluding exceptional items were US$5,488
million compared with US$3,481 million in the corresponding period, an increase
of 57.7%. This increase was due to higher commodity prices, net benefits from
portfolio management activities, higher sales volumes, cost savings and
efficiency gains. Offsetting factors were higher A$/US$ and rand/US$ exchange
rates, price-linked costs, inflation and exploration costs. Further analysis of
the factors affecting turnover and EBIT is set out on page 10 and 11.
Net interest on borrowings and cash fell from US$403 million to US$355 million,
principally driven by lower average debt levels and active management of the
Group`s debt portfolio which has resulted in lower average interest rates.
Exchange losses on net debt, mainly relating to the translation of rand
denominated debt, were US$133 million compared with losses of US$140 million in
the corresponding period.
The tax charge on earnings, excluding exceptional items, was US$1,379 million,
representing an effective rate of 27.7%. The underlying effective rate was
26.4% when taking into account the impacts of non tax-effected foreign currency
adjustments, translation of tax balances and other functional currency
translation adjustments, mainly attributable to the strengthening of both the
rand and Australian dollar against the US dollar during the period. When
compared to the UK and Australian statutory tax rate (30%), the underlying
effective tax rate benefited 2.0% due to the recognition of tax losses (US$100
million) in the US. In addition, investment incentives, development entitlements
and other unbenefited tax losses and tax credits were recognised during the
year. These benefits were offset by non-deductible accounting depreciation and
amortisation and non-tax effected losses.
Attributable profit excluding exceptional items (after minority interests of
US$97 million) was US$3,510 million, an increase of 82.8% from US$1,920 million
last year (after minority interests of US$40 million).
Basic earnings per share (excluding exceptional items) were 56.4 US cents per
share against 30.9 US cents per share in the corresponding period, an increase
of 82.5%.
Exceptional Items
Exceptional items reduced attributable profit by US$131 million (after tax)
during the year, as follows.
The Group refined its plans in relation to certain closed operations. This
resulted in a charge of US$534 million (US$512 million after tax) comprising:
* At Southwest Copper (US), a charge of US$425 million resulting from a re-
estimation of short-term closure costs and the inclusion of residual risks,
longer-term costs, (including overhead and water management) and an increase in
the residual value of certain assets; and,
* At other closed sites, a charge of US$109 million (before a tax benefit of
US$22 million), in relation to the Island Copper mine (Canada), the Newcastle
steelworks (Australia), the Selbaie copper mine (Canada), and several other
smaller sites.
The Group announced it was part of a consortium that had reached a settlement
with Dalmine SpA with respect to a claim brought against Dalmine in April 1998.
The claim followed the failure of an underwater pipeline installed in 1994 in
the Liverpool Bay area of the UK continental shelf. As a result of the
settlement, BHP Billiton has recorded an exceptional gain of US$66 million
(US$48 million after tax).
BHP Billiton elected to consolidate its Australian subsidiaries under the
Australian tax consolidation regime, as introduced by the Australian Federal
Government. Under the transitional rules, the Group has chosen to reset the tax
cost base of certain depreciable assets which will result in additional tax
depreciation over the lives of the assets. This resulted in the restatement of
deferred tax balances and an exceptional tax benefit of US$95 million being
recorded in accordance with UK Generally Accepted Accounting Principles.
The level of certainty regarding potential benefits arising from prior period
taxation deductions and foreign tax credits available in the US and Canada has
increased to the extent that some of the provisions against deferred tax assets
established in prior years are no longer necessary. This is a result of higher
income generation, changes in legislation and effective utilisation of tax
credits during the year, along with increasing confidence regarding the ability
to realise benefits in the future. Accordingly, the Group has recorded an
exceptional tax benefit of US$238 million.
Earnings including Exceptional Items
Attributable profit including exceptional items (after minority interests of
US$97 million) was a record at US$3,379 million, an increase of 77.7% from
US$1,901 million (after minority interests of US$40 million).
Basic earnings per share, including exceptional items, of 54.3 US cents was also
a record, and is 77.5% higher than the 30.6 US cents in the corresponding
period.
Cash Flow
Available cash flow (after interest and tax) was a record US$5,235 million.
Total capital and investment expenditure amounted to US$2,624 million, including
US$952 million on petroleum projects, and US$1,672 million on minerals and other
minor projects. Of the total capital and investment expenditure, sustaining
capital expenditure was US$926 million. In addition, exploration expenditure was
US$454 million, comprising petroleum exploration of US$340 million and minerals
exploration of US$114 million. Disposals of fixed assets, sale of subsidiaries
and investments, and repayments of loans by joint ventures generated US$425
million.
Net cash flow before dividend payments was US$2,582 million. Dividends paid in
the period were US$1,501 million compared with US$830 million in the
corresponding period. Net debt of US$4,769 million at 30 June 2004 represents
24.9% of net debt plus net assets. Net debt comprises US$6,587 million of total
debt offset by US$1,818 million of cash, including money market deposits.
Dividends
A final dividend for the year ended 30 June 2004 of 9.5 US cents per share will
be paid to shareholders on 22 September 2004. The BHP Billiton Limited dividend
will be fully franked for Australian taxation purposes.
A first interim dividend of 8.0 US cents per share was paid on 3 December 2003
and a second interim dividend of 8.5 US cents per share was paid on 5 May 2004.
This brings the total dividends declared for the year to 26.0 US cents compared
to 14.5 US cents in the prior year. Three dividends were declared for the year
ended 30 June 2004 as a result of the Group`s decision to realign dividend
declaration dates to coincide with the announcements of our interim and full
year results. In future years, BHP Billiton will declare an interim dividend at
the time of its interim results announcement, and a final dividend at the time
of its full year results announcement.
Dividends for the BHP Billiton Group are determined and declared in US dollars.
However, BHP Billiton Limited dividends are mainly paid in Australian dollars
and BHP Billiton Plc dividends are mainly paid in pounds sterling to
shareholders on the UK section of the register and rand to shareholders on the
South African section of the register. The rates of exchange applicable two
business days before the announcement date are used for conversion, and are
detailed below.
The timetable in respect of this dividend will be:
Currency conversion - 16 August 2004
Last day to trade JSE Securities Exchange SA (JSE) - 27 August 2004
Ex-dividend Australian Stock Exchange (ASX) - 30 August 2004
Ex-dividend JSE Securities Exchange SA (JSE) - 30 August 2004
Ex-dividend London Stock Exchange (LSE) - 1 September 2004
Record - 3 September 2004
American Depositary Shares (ADSs) each represent two fully paid ordinary shares
and receive dividends accordingly. The record date for both the BHP Billiton
Limited ADSs and BHP Billiton Plc ADSs is 3 September 2004.
BHP Billiton Plc shareholders registered on the South African section of the
register will not be able to dematerialise or rematerialise their shareholdings,
nor will transfers between the UK register and the South African register be
permitted, between the dates of 30 August 2004 and 3 September 2004.
The following table details the exchange rates applicable for conversion of the
dividend payable on 22 September 2004:
Dividend 9.5 US Exchange Dividend per
cents Rate ordinary
share in local
currency
Australian cents 0.717885 13.233317
British pence 1.842750 5.155338
South African 6.500350 61.75332
cents
New Zealand cents 0.664906 14.287734
Merger Benefits, Cost Savings and Efficiency Gains
As of 30 June 2004, including other efficiency gains of US$70 million, the Group
had achieved total merger benefits, additional cost savings and efficiency gains
of US$780 million. Cost savings of US$115 million during the year were driven by
the continuation of our Operating Excellence program, strategic sourcing and
marketing initiatives. The additional efficiency gains of US$70 million came
from items that to date have not been counted towards the original cost savings
target.
These programs and initiatives have been embedded in the way the BHP Billiton
Group does business. As a result, we expect to see continued improvements in
future periods, although there is growing pressure on input costs based on the
current strong demand environment.
Capital Management
In November 2003, Standard & Poor`s upgraded the Group`s long term credit rating
from A to A+, and in May 2004, Moody`s Investors Service changed the Group`s
outlook from A2 (stable) to A2 (positive). The benefit of a diversified
portfolio, strong financial performance, disciplined financial policies, the
integration of the Group`s operations following the merger and the lengthening
track record in successfully executing our substantial growth projects
underpinned our continued positive ratings performance.
In addition, the Group has announced a capital management program as outlined in
further detail on page 2.
Portfolio Management
A number of portfolio management activities were finalised during the current
year. Sales of non-core assets, including the sale of our interest in the
Highland Valley Copper mine (Canada) and the Robinson copper/gold mine (US) by
Base Metals, the sale of our interest in Mamore (Bolivia) by Petroleum, sale of
a non-core royalty interest by Diamonds and Specialty Products, and sales of non
core mineral rights by Stainless Steel Materials, generated total proceeds of
US$277 million.
Outlook
The global economy has been experiencing a significant increase in growth with
synchronised demand increases in many economies. Of particular note has been
strong growth in China, Japan and other Asian economies. Recovery in the United
States has been an important contributor to global growth and economic activity
in Europe has been experiencing a steady recovery from a relatively low base.
The Chinese government has taken steps to control excessive growth in certain
areas of the economy. As a result, China`s economy is expected to ease modestly
from current near double-digit growth rates. The efforts to slow demand growth
did have an impact on certain materials prices in the second calendar quarter of
2004. However, given that the government remains committed to reform,
infrastructure provision and economic growth, China is expected to remain a
large and sustainable consumer of raw materials and resources in coming years.
As in any economic cycle, we expect the rate of growth will vary from period to
period, although we do not see this altering the course of long-term growth and
development.
While recent GDP and job growth statistics in the United States have been
disappointing, we continue to see solid demand for metals through our US metals
distribution business. Raw material demand in Europe has continued to increase
as economic activity has picked up. Physical premia in Europe for some non-
ferrous metals are currently exceeding the premia in Asia, indicating the
strengthening activity in this market.
In general terms, synchronised world growth, China`s strong demand growth and
relatively low inventory levels have been instrumental in driving commodity
prices to their highest levels in several years. In certain areas, this has
been exacerbated by supply disruptions and physical infrastructure constraints.
These factors suggest that commodity prices could be sustained at higher levels
than experienced in recent years. However, stronger commodity prices will in
turn act as an inducement to new supply, which should bring supply and demand
fundamentals back towards balance over the medium term.
BHP Billiton is well placed to exercise the growth options within our portfolio
and increase production capacity for many commodities currently in short supply.
Many of these expansions can be brought to market quickly and at low cost, and
will be profitable not only in today`s strong demand environment, but throughout
the economic cycle. This is a key competitive advantage. BHP Billiton`s
combination of strong, stable cash flow and extensive organic growth
opportunities ensure that we will be able to take full advantage of continued
global economic growth and any sustained demand for raw materials. We will also
continue to look opportunistically at acquisitions where these fit our business
strategy and add value to the BHP Billiton Group.
Annual General Meetings
The Annual General Meeting of BHP Billiton Limited will be held at the Sydney
Convention and Exhibition Centre, Darling Harbour, Sydney, on Friday 22 October
2004 commencing at 11:00 am. The Annual General Meeting of BHP Billiton Plc will
be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary,
Westminster, London, on Thursday 25 November 2004 commencing at 10:30 am. The
Annual Report and details of the business to be conducted at the meetings will
be mailed to shareholders in late September 2004.
Growth Projects
Seven projects reached the commissioning stage during the current period. With
costing yet to be finalised on some of those projects, total capital expenditure
throughout the development phase of these projects was approximately US$1,857
million, which is US$80 million or 4.1% below budget.
Completed projects
Customer Project Production Capital Date of initial
Sector (1) expenditure production (2)
Group (US$ million)
(1)
Budget Actual Target Actual
Petroleum Ohanet 21,150
(Algeria) barrels of 464 464 Q4 Q4
BHP Billiton - oil (3) 2003 2003
45% equivalent
per day
Aluminium Hillside 3 132,000
(South Africa) tonnes per 449 411 Q2 Q4
BHP Billiton - annum of 2004 2003
100% aluminium
metal
Carbon Products & Increase
Steel Capacity export 299 270 Q2 Q1
Materials Expansion capacity to (3) 2004 2004
(Australia) 100 million
BHP Billiton - tonnes per
85% annum of iron
ore (100%)
Area C 12.75 million
(Australia) tonnes per 181 171 Q4 Q3
BHP Billiton - annum of iron 2003 2003
85% ore
WA iron ore Increase
Accelerated system 83 80 Q2 Q2
Expansion capacity to 2004 2004
(Australia) 100 million
BHP Billiton - tonnes per
85% annum (100%)
Energy Mt Arthur North 12.1 million
Coal (Australia) tonnes per 411 411 Q4 Q4
BHP Billiton - annum of (3) 2003 2003
100% saleable
energy coal
Cerrejon Zona 28 million
Norte tonnes per 50 50 (3) Q1 Q1
(Colombia) annum of 2004 2004
BHP Billiton - saleable
33.3% energy coal
by 2008
(100%)
1,937 1,857
(1) All references to capital expenditure and production volumes are BHP
Billiton`s share unless noted otherwise.
(2) References to quarters and half years are based on calendar years.
(3) Total project costs yet to be finalised. Share of actual capital
expenditure is indicative only.
There are 14 major projects under development (defined as BHP Billiton capital
expenditure share of greater than US$100 million). Full details on these are
given in the quarterly Exploration and Development Report, released on Friday 28
July 2004.
Projects approved during the year
Customer Sector Project Production (1) Budgeted Target
Group capital date for
expenditure initial
(US$ production
million) (2)
(1)
Aluminium Worsley 250,000 tonnes
Development per annum (100%) 165 Q1 2006
Capital of alumina
Projects
(Australia)
BHP Billiton -
86%
Base Metals Escondida 180,000 tonnes
Sulphide Leach of copper 500 H2 2006
(Chile) cathode
BHP Billiton - per annum (100%)
57.5%
Diamonds and Panda 4.7 million
Specialty Products Underground carats of high 146 Early 2005
(Canada) value Panda
BHP Billiton - diamonds over
80% six years (100%)
Stainless Steel Ravensthorpe Up to 50,000
Materials Nickel tonnes per annum 1,050 Q2 2007
(Australia) contained nickel
BHP Billiton - in concentrate
100%
Yabulu 45,000 tonnes
Extension per annum of 350 End 2007
(Australia) nickel
BHP Billiton -
100%
2,211
(1) All references to capital expenditure and production volumes are BHP
Billiton`s share unless noted otherwise.
(2) References to quarters and half years are based on calendar years.
Projects currently under development (approved in prior years)
Customer Sector Project Production (1) Budgeted Target
Group capital date for
expenditure initial
(US$ producti
million) on (2)
(1)
Petroleum Mad Dog (US) 20,700 barrels 335 End 2004
BHP Billiton - of oil
23.9% equivalent
per day
Atlantis (US) 79,200 barrels 1,100 Q3 2006
BHP Billiton - of oil
44% equivalent
per day
ROD (Algeria) 28,800 barrels 192 Q4 2004
BHP Billiton - of oil (3)
36% equivalent
per day
Angostura 45,000 barrels 327 End 2004
(Trinidad) of oil
BHP Billiton - equivalent
45% per day
North West 4.2 million 247 Mid 2004
Shelf Train 4 tonnes per annum
(Australia) of LNG
BHP Billiton - liquification
16.7% processing
facility (100%)
Gulf of Mexico Capacities of 100 Q4 2004
Pipelines Oil - 450,000
Infrastructure bbl/day (100%)
(US) Gas - 500
BHP Billiton - million standard
Gas 22%; Oil cubic feet per
25% day (100%)
Minerva 150 terrajoules 150 (4) Q4 2004
(Australia) of gas per day (4)
BHP Billiton -
90%
Base Metals Escondida Maintain 230 Q4 2005
Norte (Chile) capacity at 1.25
BHP Billiton - million tonnes
57.5% per annum of
copper (100%)
Carbon Steel Dendrobium 5.2 million 170 Mid 2005
Materials (Australia) tonnes per annum
BHP Billiton - of raw met coal
100% (3.6 million
tonnes per annum
of clean met
coal)
2,851
(1) All references to capital expenditure and production volumes are BHP
Billiton`s share unless noted otherwise.
(2) References to quarters and half years are based on calendar years.
(3) Following delays in procurement of some equipment and materials, and below
expected construction productivity, first oil is now scheduled for Q4 2004
(original target Q1 2004).
(4) Following a review of contractual arrangements relating to the design and
construction of the Minerva development, initial production is now expected in
Q4 2004 (original target end Q1 2004), and BHP Billiton`s share of capital
expenditure was increased from US$123 million to US$150 million.
OPERATING REVIEW
EBIT
The following table details the approximate impact of major factors affecting
EBIT (excluding exceptional items) for the year ended 30 June 2004 compared with
the corresponding period.
US$M
EBIT excluding exceptional items for the year ended 30 3 481
June 2003
Change in volumes 180
Change in sales prices 3 145
Price-linked costs (325)
Inflation on costs (300)
Costs 70
New operations 55
Ceased and sold operations 75
Asset sales 60
Exchange rates (775)
Exploration (85)
Other items (93)
EBIT excluding exceptional items for the year ended 30 5 488
June 2004
Volumes
Higher sales volumes of copper, iron ore, aluminium, natural gas, LPG, manganese
ore, metallurgical coal and diamonds were partially offset by lower oil and
titanium feedstock product volumes. This resulted in a net positive impact on
EBIT of approximately US$180 million.
Prices
Higher commodity prices increased EBIT by approximately US$3,145 million with
copper, nickel, petroleum products, aluminium, export energy coal, ferrochrome
and iron ore prices having significant contributions.
Costs
Higher price-linked costs decreased EBIT by approximately US$325 million, mainly
due to increased taxes on petroleum products, and higher LME-linked costs.
Inflationary and other input cost pressures, principally in South Africa and
Australia, increased costs by approximately US$300 million. These factors were
partially offset by favourable operating cost performance of approximately US$70
million.
New operations
New operations increased EBIT by approximately US$55 million mainly due to the
commencement of commercial production from the Ohanet wet gas development in
Algeria from October 2003.
Ceased and sold operations
Ceased and sold operations had a favourable impact on EBIT of approximately
US$75 million. This mainly reflects the impact of divested assets including the
Group`s petroleum assets in Bolivia, the Alumbrera copper/gold mine in
Argentina, and our 33.3% interest in the Highland Valley Copper mine.
Asset sales
Asset sales favourably impacted EBIT by approximately US$60 million mainly due
to the sale of non-core assets in the current period, including a non-core
royalty interest in December 2003 and sales of non-core mineral rights.
Exchange rates
The unfavourable exchange rate impact on EBIT of US$775 million was primarily
due to stronger A$/US$ and rand/US$ average exchange rates on operating costs
which had an unfavourable impact on EBIT of approximately US$915 million. The
conversion of rand and Australian dollar denominated net monetary liabilities at
balance sheet date had a favourable impact of approximately US$65 million on
EBIT, which was mainly due to the closing A$/US$ exchange rate appreciating 3.4%
during the current period compared with an appreciation of 17.7% in the
corresponding period. Gains on legacy A$/US$ currency hedging of US$39 million
in the current period had a favourable impact of US$125 million compared to
losses of US$86 million in the corresponding period.
Exploration
Exploration expense was approximately US$85 million higher than the prior
period. Gross exploration expenditure was US$454 million, comprising petroleum
exploration of US$340 million and minerals exploration of US$114 million,
compared with US$348 million in the corresponding period.
CUSTOMER SECTOR GROUP SUMMARY
The following table provides a summary of the Customer Sector Group results for
the year ended 30 June 2004 and the corresponding period (before exceptional
items).
Year ended 30 June Turnover (1) EBIT (1)
(US$ Million)
2004 2003 Chang 2004 2003 Chang
e % e %
Petroleum 5 558 3 264 70.3% 1 391 1 178 18.1%
Aluminium 4 432 3 386 30.9% 776 581 33.6%
Base Metals 3 422 1 954 75.1% 1 156 286 304.2
%
Carbon Steel 4 857 3 714 30.8% 1 137 1 045 8.8%
Materials
Diamonds and 1 710 1 485 15.2% 410 299 37.1%
Specialty Products
Energy Coal 2 569 2 089 23.0% 234 198 18.2%
Stainless Steel 1 749 1 106 58.1% 571 150 280.7
Materials %
Group and 1 796 1 014 77.1% (187) (256) N/A
unallocated items
(3)
BHP Billiton Group 24 17 506 42.5% 5 488 3 481 57.7%
(2) 943
(1) Turnover and EBIT include trading activities comprising the sale of third
party product.
(2) BHP Billiton Group turnover is stated after the elimination of intersegment
transactions.
(3) Includes consolidation adjustments, unallocated items and the Group`s
freight, transport and logistics operations and associated third party activity,
much of which are transactions with other Customer Sector Groups.
An explanation of the factors influencing EBIT, including the Group`s share of
joint ventures and associates, by Customer Sector Group, is as follows:
Petroleum
Petroleum contributed EBIT of US$1,391 million, up from US$1,178 million, an
increase of 18.1% compared with the corresponding period.
The increase in EBIT was primarily due to stronger prices for crude oil (2004 -
US$32.24bbl; 2003 - US$28.14bbl) and natural gas (2004 - US$2.62 per thousand
standard cubic feet; 2003 - US$2.21 per thousand standard cubic feet), new
production from Ohanet (Algeria) and Boris (US), and a smaller loss on foreign
exchange. These factors were partially offset by lower oil volumes, higher price
linked costs and increased exploration expenditure.
The conversion of Australian dollar denominated net monetary liabilities at 30
June 2004, mainly resource rent tax, had a smaller negative impact on EBIT
compared to the corresponding period. The prior year was also negatively
impacted by a write down of the Group`s Bolivian assets, due to a government
driven change to fiscal arrangements.
Overall, production of petroleum products on a barrel of oil equivalent basis
increased by 1% from 121.8 million barrels to 122.5 million barrels. Oil and
condensate production declined by 12% from 65.9 million barrels to 58.0 million
barrels, but natural gas production (including LNG) increased by 15% from 281.2
billion cubic feet to 324.3 billion cubic feet. Gross exploration expenditure
for the period of US$340 million was US$97 million higher than the corresponding
period reflecting increased exploration activity in the Gulf of Mexico (US),
Trinidad and Tobago and Western Australia. Due to successful drilling results,
the capitalisation rate increased to 46.8% from 36.6% in the corresponding
period.
Aluminium
Aluminium contributed EBIT of US$776 million, up from US$581 million, an
increase of 33.6% compared with the corresponding period.
The increase in EBIT was mainly attributable to higher realised prices for
aluminium and alumina. Average LME aluminium prices increased to US$1,570 per
tonne, compared with US$1,360 per tonne in the corresponding period. Higher
sales volumes from Mozal 2 (Mozambique) and Hillside 3 (South Africa) following
full commissioning in August 2003 and December 2003 respectively, also had a
favourable impact on EBIT.
These factors were partially offset by the unfavourable impact on operating
costs of strengthening A$/US$, rand/US$ and Brazilian real/US$ average exchange
rates, higher LME price-linked costs, increased transportation costs and
inflationary pressure in Brazil.
Base Metals
Base Metals contributed EBIT of US$1,156 million, up from US$286 million, an
increase of US$870 million compared with the corresponding period.
This increase in EBIT is mainly attributed to higher average realised prices for
copper (2004 - US$1.14lb; 2003 - US$0.73lb), silver, lead and zinc. Record
production was achieved at Escondida where de-bottlenecking continues as the
operation moves towards full capacity. The improvement in the copper market
allowed sulphide operations at Tintaya (Peru) to resume in August 2003,
returning to full capacity during the current calendar year. Record production
was also achieved at Cannington, and production of zinc at Antamina (Peru) was
significantly higher.
These factors were partially offset by the unfavourable impact on operating
costs of stronger A$/US$ and Chilean peso/US$ average exchange rates, higher
operating and maintenance costs at Escondida, and higher production costs at
Antamina. The prior year included the results of the Alumbrera mine, which was
sold effective April 2003.
Carbon Steel Materials
Carbon Steel Materials contributed EBIT of US$1,137 million, up from US$1,045
million, an increase of 8.8% compared with the corresponding period.
The increase in EBIT was mainly attributable to stronger commodity prices,
record production and sales volumes at Western Australian iron ore operations,
and higher sales at both Queensland coal and Australian manganese ore
operations. Local currency unit cost performance improved at Western Australian
iron ore, as a result of ongoing cost efficiency programs and increased
production.
The EBIT improvements above were partially offset by the unfavourable impact of
stronger A$/US$ and rand/US$ average exchange rates and inflationary pressure on
Australian and South African operations compared with the corresponding period.
Depreciation charges increased at Western Australian iron ore operations
following the completion of the Area C and Products and Capacity Expansion
projects, and stripping and demurrage costs were higher at Queensland coal and
Western Australian iron ore operations.
Diamonds and Specialty Products
Diamonds and Specialty Products contributed EBIT of US$410 million, up from
US$299 million, an increase of 37.1% compared with the corresponding period.
The increase in EBIT was mainly attributable to higher realised prices for
diamonds and Integris metal products, (a reflection of strong market
conditions), profits realised on the sale of a non-core royalty interest (US$37
million), and higher diamond sales volumes.
These factors were partially offset by higher price-linked costs at Integris
Metals (US), lower titanium feedstock volumes, higher depreciation charges at
Ekati and the unfavourable impact of stronger rand/US$ average exchange rates on
operating costs.
Energy Coal
Energy Coal contributed EBIT of US$234 million, up from US$198 million, an
increase of 18.2% compared with the corresponding period.
The increase in EBIT was mainly due to improved export prices resulting from
strong demand in both the Atlantic and Pacific markets, cost savings driven by
integration synergies and business improvement programs at Cerrejon Coal
(Colombia), and increased sales volumes from Australian and Colombian
operations.
This was partially offset by the unfavourable impact on net operating costs of
stronger rand/US$ and A$/US$ average exchange rates, and higher unit costs at
Ingwe (South Africa) reflecting lower export sales volumes, higher contractor
costs, and South African inflationary pressures. Increased demurrage costs at
Ingwe and Hunter Valley (Australia) also had an unfavourable impact on EBIT. In
addition, exploration expenditure previously capitalised has been written off.
Stainless Steel Materials
Stainless Steel Materials contributed EBIT of US$571 million, up from US$150
million, an increase of US$421 million compared with the corresponding period.
The increase in EBIT was driven by higher realised prices for nickel (2004 -
US$5.49lb; 2003 - US$3.46lb), and ferrochrome. Profits from the sale of mineral
rights in South Africa (US$30 million), and record production at nickel
operations achieved through ongoing improvement programs at both Cerro Matoso
(Colombia) and the QNI Yabulu refinery (Australia), also had a favourable impact
on EBIT.
These factors were partially offset by the unfavourable impact on operating
costs of stronger rand/US$ and A$/US$ average exchange rates, higher price-
linked ore supply costs to the QNI Yabulu refinery and higher royalties at Cerro
Matoso. In addition, increased shipping costs, higher oil and coking coal
prices, and inflationary pressures in South Africa had an unfavourable impact on
EBIT.
Group and Unallocated Items
Net corporate operating costs, excluding gains and losses from legacy A$/US$
currency hedging and other exchange impacts, were US$258 million, a decrease of
US$9 million compared to US$267 million in the corresponding period. The
underlying decrease in costs was partially offset by the impact of asset sales
and other one-off items in the corresponding period.
Gains on legacy A$/US$ currency hedging were approximately US$39 million during
the current period, compared with losses of approximately US$86 million in the
corresponding period.
FINANCIAL INFORMATION
Contents
Consolidated Profit and Loss Account 17
Consolidated Balance Sheet 19
Consolidated Statement of
Total Recognised Gains and Losses 19
Consolidated Statement of Cash Flows 20
Notes to the Financial Information 22
The financial information in this document for the year ended 30 June 2004 is
unaudited, has been derived from the draft financial statements of BHP Billiton
Plc and does not constitute the statutory accounts of BHP Billiton Plc for that
year.
The financial information set out on pages 17 to 29 has been prepared on the
same basis and using the same accounting policies as were applied in drawing up
the financial information contained in the accounts of BHP Billiton Plc for the
year ended 30 June 2003 except for the change in accounting policy for employee
share awards described in Note 1. Where applicable, comparatives have been
adjusted to disclose them on the same basis as current period figures.
In the opinion of the Directors, the financial information for the year ended 30
June 2004 presents fairly the financial position, results of operations and cash
flows for the year in conformity with UK generally accepted accounting
principles (GAAP). The financial information for the year ended 30 June 2003
has been derived from the audited financial statements of BHP Billiton Plc for
that period as filed with the UK Registrar of Companies and does not constitute
the statutory accounts of BHP Billiton Plc for that period. The auditors`
report on the statutory accounts for the year ended 30 June 2003 was unqualified
and did not contain statements under Section 237 (2) (regarding adequacy of
accounting records and returns) or under Section 237 (3) (provision of necessary
information and explanations) of the United Kingdom Companies Act 1985. The
statutory accounts for the year ended 30 June 2004 will be finalised on the
basis of the financial information presented by the Directors in this
preliminary announcement and will be delivered to the UK Registrar of Companies
following the Annual General Meeting.
The combined results for the year ended 30 June 2004, prepared in accordance
with UK GAAP, are generally consistent with the combined results under
Australian GAAP as required by the Australian Securities and Investments
Commission in respect of dual listed companies, except for the impact of
accounting for deferred taxation. Financial results prepared in accordance with
Australian GAAP are provided on page 30 to 31.
Consolidated Profit and Loss Account
For the year ended 30 June 2004
Year ended 30 June 2004
Excluding Exceptional Total
exceptional items
items (Note 2)
Not US$M US$M US$M
es
Turnover (including share of
joint ventures and associates)
Group production 18 283 - 18 283
Third party products 3 6 660 - 6 660
3 24 943 - 24 943
less Share of joint ventures` and
associates` turnover included
above (2 056) - (2 056)
Group turnover 22 887 - 22 887
Net operating costs 2 (17 960) 66 (17
894)
Group operating profit 4 927 66 4 993
Share of operating profit of 425 - 425
joint ventures and associates
Operating profit 5 352 66 5 418
(including share of profit of
joint ventures and associates)
Comprising:
Group production 5 319 66 5 385
Third party products 3 33 - 33
5 352 66 5 418
Income from other fixed asset 35 - 35
investments
Profit on sale of fixed assets 95 - 95
Profit on sale of operations 6 - 6
Loss on sale of discontinued 2 - - -
operations (a)
Loss on termination of operations 2 - (534) (534)
(b)
Profit/(loss) before net interest 5 488 (468) 5 020
and similar items payable and
taxation
Net interest and similar items
payable
